Choosing Tax-deferred investing

Don’t forget to take advantage of any form of tax-deferred investing available to you. Max out on the retirement plans offered to you at work (such as your 401(k) plan). Investing in this way really does boil down to a choice of paying yourself or paying the IRS.
With retirement plans such as a 401(k), you enjoy the added bonus of being able to deduct your contributions, up to a maximum of 15% of what you earn, from your income each year for tax purposes. Now that’s hard to beat. The maximum amount that you can deduct depends on the plan. Some plans allow 8%, some 10%. But no plan is allowed, by law, more than 15%.
Contributions made to a 401(k) plan are deductible from gross income for income tax purposes. If you do your taxes yourself, you deduct your overall annual contribution from your gross income. If an accountant or attorney does your taxes, she or he does the deduction for you. Just as hard to beat is the Roth IRA. If you have adjusted gross income under $95,000 as an individual, you can tuck away $2,000 in a Roth IRA each year and begin to take distributions tax-free when you hit the age of 591⁄2. If you’re married and you and your spouse have a combined adjusted gross income of $150,000 or less, you can tuck away $4,000 a year. Unlike regular IRAs, Roth IRAs allow investments even if you’re enrolled in an employer-sponsored retirement plan. The same goes for self-employed folks. With the Roth, you get tax-free capital gains every year, and you get to take withdrawals tax-free when you hit retirement age at 591⁄2, provided you’ve had the account for at least five years. Deductions for an IRA differ in that you take a dollar amount deduction, not a percentage of your gross income. The maximum deduction for an IRA is $2,000 per individual, if you qualify for the plan.